When it comes to financial advice, a crucial aspect to understand is superannuation, also known simply known as a super.
Superannuation in Australia is a vehicle that allows us to save for retirement in a tax-efficient manner. Contributions are made to your superannuation account, primarily by your employer – these are known as superannuation guarantee contributions. These contributions are invested into your allocated investment profile, and your balance is drawn down once you reach your superannuation preservation age or retirement.
So, why must each Australian have superannuation in place? Who benefits? And are there any catches? These answers might help you grasp the workings and benefits of superannuation and why you should effectively save for retirement.
Why You Should Effectively Save For Retirement
Incentivising Accumulated Wealth
In terms of financial advice, superannuation is designed to give individuals incentives to invest in retirement savings rather than just working until they can no longer keep going and then rely on basic government benefits to survive. These incentives work in several ways, including the following:
- The ability to make deductions based on superannuation contributions reduces personal income taxes.
- Ensure all asset earnings are taxed at a maximum of 15% (compared to up to 45% plus levies in your name).
- As a means to force you to save for your retirement.
- As a place for you to house and grow investments for when you retire.
- The ability to draw tax-free income from your superannuation when you retire.
Why Did the Government Prioritise This?
Although saving for retirement is essential, as a population, we tend to save up for retirement later than we should. Many people don’t start thinking about how they will fund their retirement until about ten years before it begins. However, a person can begin contributing to their superannuation fund much sooner than this.
Thankfully, you can adopt a few strategies to ramp up your retirement savings should you find yourself in this situation.
If it weren’t for a few Government incentives and support schemes (e.g., super co-contribution1 and low income super tax offset2), we would probably save less. The rates for Age Pension3 are already relatively low, and they would be significantly lower if we didn’t have any superannuation savings.
This is why superannuation is so important; with more and more people reaching the average retirement age, it is essential that they no longer rely on social security benefits and begin self-funding their golden years. On the other hand, it also alleviates a heavy burden on the Government Budget and economy to support those already retiring or who have decided to retire early.
Most people with a superannuation-only retirement plan have to wait until they reach preservation agebefore they can access their superannuation funds. This means that if you choose to retire before your preservation age, you must have investments outside of superannuation to sustain you financially until you can access your superannuation funds. However, there are some tax benefits4 tied to investing in superannuation.
Supersizing Your Superannuation!
Never neglect your superannuation! First, you’re saving for your future. Second, you’re helping the government and economy by creating a self-sustaining income for yourself during your retirement years. This is the best financial advice you can ever receive, so don’t ignore it. Take stock of your superannuation and create a plan to live your best retirement today.
If you also need superannuation financial advice on the Central Coast so you can do everything you dreamed of in retirement, contact Central Coast Financial Planning Group today! We can guide clients through wealth creation, wealth protection, retirement planning and more! Call us or book online to secure your complimentary first meeting with an experienced financial adviser.
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.